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Trucking’s getting a breather with weakening freight demand: FTR

However, regulatory drag will resume in 2017, potentially causing an unprecedented shortage of drivers


INDIANAPOLIS, Ind. — Whether it wants one or not, the US trucking industry is getting a bit of a breather.

Capacity utilization has dropped to a more normalized 95% and the impact of regulatory drag on truck capacity has decreased, according to Noel Perry, truck and transportation expert for industry analyst FTR. He was speaking during FTR’s free State of Freight Webinar today on Key Transportation Issues. However, he also said the reduced pressure on trucking capacity could be short-lived, with as many as 23 regulations still on FMCSA’s to-do list, many of which could reduce the trucking industry’s productivity.

“Right now in mid-2015, because freight growth has slowed and because the FMCSA is in the business of studying and writing regulations and not publishing new ones, there is a reduction in regulatory risk and the marketplace is relatively quiet,” Perry explained.

However, he noted regulations that should come into effect in 2017 – including the mandatory use of speed limiters and electronic logging devices – will require a “substantial amount of additional hires.”

“When that happens we get (capacity) tightness,” Perry said. “The regulatory risks are real; just not in 2015 but in late 2016 and certainly in 2017.”

Perry said the US is currently short about 100,000 drivers, which is “normal for a recovery” and “something the industry handles pretty well.” However, he said with the onslaught of new productivity-choking regulations expected in the next couple years, the US could be short as many as 300,000-400,000 drivers by 2017, which would be unprecedented.

Speaking to the economy and US manufacturing, Jonathan Starks, director, transportation analysis with FTR, said there’s been a definite slowdown.

The ISM manufacturing index has weakened considerably over the past six months, as has industrial production. Business investment has slowed as well.

“It may take another three months to get business investment going again and another three months to get it to show up in the freight market, so for the next three to six months the freight market’s probably going to be a big weaker,” Starks said.

He noted truck loadings have been sliding, as have spot market rates, which tend to change more quickly in response to actual market conditions than do contract rates.

Carriers, however, continue to do well financially. Starks said the publicly traded US carriers FTR watches closely are doing well, thanks in large part to reduced fuel costs. In fact, they’re even enjoying profit margins better than in 2004, the industry’s last heyday.

Driver wages, including benefits, have climbed about 15%, Starks noted, partially offsetting declining diesel prices.

Asked if we should be bracing for a US recession, given the weakening of some economic indicators and the fact there hasn’t been one in close to seven years – the traditional economic cycle – Perry said he’s not yet too worried.

“In the last three recoveries we’ve gone beyond that seven-year average (between recessions), so there’s reason to hope we’ll be out sometime in 2017 or 2018 before the economy weakens,” he said. “The bad news is, the global economy is not healthy. We’re all aware of the Greece problems. You’re probably aware the Chinese stock market is plummeting down 30% and headed for more. So there’s a possibility of a globally induced recession in the US beginning sometime next year. It’s not something I’d bet on yet, but it’s something I’d have in my contingency plans.”

To learn more about FTR’s analysis and State of Freight webinars, visit www.ftrintel.com.

 


James Menzies

James Menzies

James Menzies is editor of Truck News magazine. He has been covering the Canadian trucking industry for more than 15 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.
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